LIVE MARKETS-Eurozone bank valuation revival to continue - UniCredit

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EUROZONE BANK VALUATION REVIVAL TO CONTINUE - UNICREDIT

For the first time since 2010, the average Euro area bank's price/book ratio is above one, in a valuation revival that looks set to continue and helps further close a gap with U.S. peers, the UniCredit Investment Institute said.

According to a paper authored by UniCredit credit strategist Michael Teig in Munich, this turnaround isn't just a product of higher interest rates, but reflects deeper structural changes.

"Suggesting that higher interest rates are the sole reason for the improved profitability of euro area banks fails to capture the full picture," he writes.

"The stronger financial performance also reflects that the European banking sector has successfully reduced non-performing loans, improved its operational efficiency, transformed its business model by improving fee-driven revenues and embraced digitalization".

While noting that consolidation, particularly in Spain and Italy, alongside robust ECB supervision since 2014, has also fortified the sector, Teig is upbeat about what lies ahead.

"We see a high likelihood that European banks will continue to trade at an average price/book ratio of more than one and will continue to close the valuation gap to their US peers," he says, noting that consensus estimates forecast eurozone banks will enjoy higher profitability than US banks in 2025 and 2026.

(Danilo Masoni)

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